Can Oil Prices in India decline with US Sanctions on Venezuela

Can Oil Prices in India decline with US Sanctions on Venezuela

The oil sanctions imposed by the United States in Venezuela could prove to be an energy boon for India and China. The Trump administration has announced sanctions against the Venezuelan state oil company, Petroleum de Venezuela, S.A., or PDVSA, targeting lucrative exports of Latin American crude oil. US refineries are the main buyers of Venezuelan oil and the proposed sanctions would put an end to any oil trade between the two countries. The resulting excess supply of crude would become available to India and China at greatly reduced prices.

US sanctions offer an opportunity to reroute the approximately 500,000 barrels of crude per day produced by PDVSA in the Indian and Chinese markets, said Siddharth Aryan, director of energy and infrastructure at the US-Canada Strategic Partnership Forum. In the past, Venezuela had agreed to sell oil in Indian rupees, which allowed the two countries to bypass [US sanctions] effectively. The latest round of sanctions imposed by the Trump administration could offer a similar opportunity to India and China.

India And China, Major Oil Importers

The two Asian countries are among the largest importers and consumers of oil in the world, with China topping both lists. Beijing imported $ 162.2 billion worth of crude oil in 2017 alone, or 18.6 percent of all world imports that year. The fourth largest importer in the same period, India remains the world’s third largest consumer behind the United States. It is also the third largest buyer of Venezuelan crude, after the United States and China. Indian refineries, in particular, would benefit from the oil sanctions imposed on Venezuela in the short run, since more competitive prices would be offered to them.

He stressed, however, that this was contingent upon the resolution of shipping and payment problems. India and China have looked to diversify their crude exports by varying their suppliers. Several Middle Eastern countries, including Iraq, Saudi Arabia, and Iran, are likely to continue to be the main exporters to both countries, but Venezuela is a major source of oil for India and the United States. Caracas exported about 330,000 barrels of oil to each of the two Asian giants in 2018 alone. However, this figure represents a drop of 11% and 5% in imports into India and China, respectively, compared to the previous year.

Venezuelan Losing Customers For Its Oil

Economic mismanagement and under investment in refinery infrastructure and processing technologies have compromised the quality and quantity of Venezuelan crude exports while eroding its customer base abroad. Other major Asian buyers of Venezuelan crude, including Japan and South Korea, have significantly reduced or completely halted their oil imports from the country. Despite this, India and China have preserved their petroleum trade with Caracas because of their voracious energy needs. India is poised to surpass China as the world’s second-largest oil demand center behind the United States. This study cites two main reasons behind this projection: an increase in consumer demand for more cars and trucks due to the recently passed Goods and Services Tax (GST); and the next national elections and the populist pressures that accompany them.

China, for its part, sees no major change in its oil consumption levels on the horizon. Not surprisingly, both countries see an opportunity in the current diplomatic crisis in Venezuela with the United States. With sanctions imposed on PDVSA imposing a total embargo on the oil trade between the Latin American public company and its US customers, Venezuela will probably be forced to dump large cuts in India and China. New Delhi will be particularly eager to buy the crude moved. India has been forced to reduce its Iranian oil imports due to possible exposure to secondary sanctions because of the White House’s decision to withdraw from the multilateral nuclear agreement reached between Iran and reimpose sanctions on the Persian Gulf State.

 

 

About Varun Seepathi 40 Articles
With an experience of over 3 years, Varun Seepathi has aided more than 50 medium to small and large firms for foraying into new markets, by increasing footprint in the existing bracket and understanding the ins and outs of these beasts. These beasts are the companies which have been exclusively engaged in materials, chemicals or packaging activities, and have encountered restraints either in the maintenance of P&L or in beating their competitors. He has also authored more than 300 research papers relating to the industry which consist of crucial information such as addressable serviceable market, strategies of players, growth of the market, market size, forecast, market share estimations and winning strategies along with opinions on the same. The “three slope distributor/off-taker evaluation model” currently in use by a lot of multinational companies has also been pioneered by him. A mood driven writer, a professional consultant, and a born explorer, Varun Seepathi is currently working as a full-time consultant. Healthcare, wealth management and information technology are some of the verticals of the industry where he has demonstrated his skills.